Pension savers have been warned that the triple lock is under pressure. (Image: Getty)
The Royal Family is marking 100 years since Queen Elizabeth II was born, and although she didn’t reach her century, a growing number of Britons will.
Latest figures show 16,600 of us are now aged 100 or over, double the number 20 years ago, while 625,000 are over 90. Women still tend to live longer, but men are catching up, now making up a third of the over-90s. It’s a remarkable shift, but longer lifespans make retirement planning more difficult. Will your pension last as long as you do?
Today, the average 65-year-old man can expect to live to 85, while women live to 87. Sarah Coles, head of personal finance at AJ Bell, said many will live longer still.
That raises a big challenge. Pensioners may need to fund 20 or even 30 years of retirement, which isn’t easy.
The state pension alone won’t cut it. A single pensioner needs at least £13,400 a year, according to the Retirement Living Standards survey. The full new state pension pays a maximum of £12,457 this year.
The triple lock has boosted incomes, but it’s under pressure. Coles said: “Nobody is suggesting the state pension will disappear altogether in the near future, but no state benefit is written in stone.”
She suggested using an online pension calculator to check what you could build by retirement, and the income it might provide.
Many retirees now leave their pension invested and draw an income as they go. But there’s a risk of taking too much too soon. “One way to be certain a drawdown pot lasts for life is to take just the natural yield from your investments, such as dividends from shares, to avoid eating into the capital itself.”
This helps the fund keep growing and keep pace with inflation, while leaving a buffer for later-life costs such as care. “But you need a substantial pot,” she added.
Annuities are back in favour, with rates at their highest for years. A 65-year-old with a £100,000 pension could secure a level income of around £7,800 a year.
The drawback is inflation. Coles warned a level income will be eroded over time, noting prices have more than doubled over the last 30 years. “You can opt for an inflation-linked annuity but the initial income will be much lower.”
The same £100,000 might deliver just £5,891 in the first year with a 3% escalating annuity.
Annuities offer certainty but limit flexibility. Many now combine annuities and drawdown, either together or at different stages of retirement, Coles said.